Manage Debt With Practical Budgeting

Kathy Burns-Millyard

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If you're deeply in debt and have been for years, you may be losing the hope of ever getting your finances under control again. Though your future can look quite bleak with large amounts of debt, have hope: There are steps you can take today to start managing those debts, and keep them from getting worse.

One of the best ways to manage debt while still enjoying life, is to use a personal or household budget. A budget is simply a financial plan. It catalogs how much income you have, and how much must go out each month.

Budgets are not hard to set up, but they can be a bit difficult to stick to. With a bit of willpower and discipline though, budgeting can help you control how much money flows out each month, and in the process it can also help you avoid additional debts. Sometimes budgeting can even help you reduce the current debts you have.

To create a budget, start by asking yourself a few questions, and writing down the answers:

1. How much total income do I have each month? Don't make the mistake of using your salary here, you need to work with useable income in your budget. If your “salary" is $50,000 per year, you can't just divide that by 12 and have an accurate monthly income. Deductions are made before you get the paycheck, so for the purpose of budgeting: Income is actual money received - after taxes or any other with holdings.

2. What are my fixed expenses each month? Fixed income includes bills that are always the same. These include mortgages, rent, credit accounts, car payments, and insurance.

3. What are my variable expenses each month? These will include utility bills, gasoline, and groceries.

By their very nature, variable bills are harder to budget for. If you have a year's worth of previous bills available to use as reference, add them all up and get an average. Or get a high and low, then create an average from that.

How you budget for these expenses will be your personal choice. You can use an average, estimated high, or estimated low. If your electric bill runs $150 for about 9 months out of the year for instance, but $300 during the three or four months of summer, then you might choose to budget just $150 per month for that bill. It would be smarter however, to budget at least $200 a month. This would allow you to accumulate extra in that part of your budget, so you'll have the added expense already covered when your more expensive months arrive.

Be sure you do not add any extras or luxuries into the above two steps. Those should simply be lists of required expenses you have each and every month.

Total your fixed and variable expenses, then subtract them from your overall useable monthly income. This is known as your “disposable income". This is where you can spend on luxury items, put something away into savings, or put a bit extra towards outstanding debts.

The ideal option is to budget for all three. Allow yourself some luxuries: Denying yourself a bit of fun or entertainment will only make you resent the budget more, and you'll be likely to stop following it soon.

Also allow yourself to put something into savings. Having an emergency fund socked away adds quite a bit of confidence, and helps releive the stress of large debt.

Last but not least: If you're able to, use a little of your disposable income to pay more than you have to on at least one debt each month. The faster you start paying those down, the more disposable income you'll have, because you'll be cutting out the interest those debts generate.

Now that you have everything written down, with estimated or fixed dollar amounts for each item, you have a working beginner budget. Stick with this plan each and every month and you'll soon find yourself sleeping much easier at night. . . and maybe even conquering some of your debt demons too!

© 2006, Kathy Burns-Millyard. More About Managing Debt : For a free guide to managing, reducing and eliminating your worst debts, please visit


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